No-Par Value Stock
Candlefocus EditorNo-Par Value stock has become increasingly popular among corporations as companies look to maximize their liquidity while they are in the startup phase. This trend is also seen with private-equity and venture capital firms, as they often try to minimize the amount of capital they need to invest in the early life of a company.
Rather than having a set stated par value, the value of no-par value stocks is based entirely on the market and the amount of investors willing to purchase these stocks at the going market rate. The company issuing the stock does not typically set an initial price; instead, the stock’s value is determined by the market, allowing for larger or higher initial offerings of new shares in the future.
However, there are a few drawbacks to this stock. First, the lack of an initial par value for the stock can create confusion for investors who are not familiar with this type of stock. Additionally, analysts often view companies that issue no-par value stock with skepticism since these companies are not fully capitalized. Furthermore, there is also the risk that if the stock price of the issuing company plummets and the company defaults, investors in no-par value stock can suffer significant losses as they have no stated par value as a source of security.
Overall, no-par value stocks are beneficial to firms that are looking to access more capital without having to issue large amounts of stock at the outset. It also gives companies looking to issue more shares in the future the flexibility to do so without having to issue a large amount at once. Despite these advantages, no-par value stocks can also be risky and confusing for investors, so it is important to understand the risks and rewards associated with these types of stocks prior to investing.